Legislative hijinks are happening in Congress right now and they are going to have an impact on the timing of a potential tax increase coming down the road.

The Senate has struggled for a while now to come to an agreement on a $1 trillion infrastructure package, but with some bipartisan cooperation they’ve pushed it through. Democrats in Congress have turned their attention to a $3.5 trillion budget that is going to be a much bigger challenge.

Any tax increase that gets pushed through will be part of this budget because it is going through budget reconciliation, which has several implications.

Everything included in this bill will expire in 8 years because of the nature of budget reconciliation.

The Speaker of the House, Nancy Pelosi, has declared that they won’t vote on the $1 trillion infrastructure bill until she feels they have enough votes for the larger $3.5 trillion budget.

The GOP has made it clear that they will oppose the larger bill at every turn which is why the Democrats are resorting to budget reconciliation to get the bill done.

The proposal contains plans to expand healthcare coverage, universal Pre-K and free community college, ambitious federal programs to combat climate change, and a path to citizenship for qualified immigrants.

There is a lot riding on this package for President Biden and the Democrats going into the 2022 midterms.

There are a group of moderate Democrats that are uncomfortable with the size of the bill. Joe Manchin has spoken out against the high level of spending among other prominent Democrats.

Progressives are pushing five things with the bill by recasting different political issues as economic. This is the argument for pushing the bill through the budget reconciliation process.

Because of the lack of Democrat cohesion on the bill, it is unlikely to pass anytime soon. Biden needs a win going into the midterms and stalling now is not going to look good. Tied into that is the future of tax rates.

Even with the increased taxes built into the bill, spending will still go up. The government will not have enough revenue to cover the cost of the bill, which means the debt will continue to rise.

The tax cuts on middle America will likely be extended for another 8 years, and this means the debt is going to continue to compound and the fix in 2030 will be even more aggressive.

These developments not only directly impact people making systematic shifts from tax-deferred to tax-free over the next eight years, but we need to consider the environment of fiscal instability coming down the road.

Mentioned in this Episode:

Here Are 5 Hurdles That Democrats Face Now For Their $3.5 Trillion Budget - npr.org/2021/08/12/1026184120/here-are-5-hurdles-that-democrats-face-now-for-their-3-5-trillion-budget